AXA Framlington's Citywire A-rated Nigel Thomas (above) says the race to UK-centric cyclicals is all but over and is focusing on 'quality' growth companies with a global reach.

Thomas, who runs the £1.4 billion AXA Framlington UK Select Opportunities fund, is also positioning his fund to be able to cope with a rise in inflation, although he not believe inflation will get out of control.

He suggests we are set for a bout of ‘slugflation’ – a term coined to describe sluggish economic growth accompanied by a rise in inflation.

‘If we do get slugflation you want to be invested in companies which can demonstrate growth and when quantitative easing ends you should be in these types of companies,’ he said. ‘The race to UK cyclicals is all but over, people are now looking for good quality growth.’   

However, Thomas believes there is plenty of opportunity in cyclicals that have exposure to the global economy. Only 10% of his portfolio is invested in UK-centric companies, with the remainder focusing on firms with exposure to overseas economies.

He says: ‘The money is now considering how far the purely cyclical stocks can advance from here, and, already in the UK, given the outlook for real growth in the economy over the next two years, the stockmarket is rotating out of these cyclical into international earners.’

He adds: ‘The attraction of overseas earnings cannot be overemphasised; firstly given our open international economy, secondly the make-up of the earnings of the FTSE 100 and thirdly the outlook for the UK economy. This is especially true in an election year, with maximum doses of kaolin and morphine needed to settle the UK economic stomach and calm the pain of withdrawal from excessive and local government spending and gluttony.’

Thomas has identified a number of sectors which have the capacity to prosper in an inflationary environment.